Interim Results
Serica Energy plc
03 August 2006
Serica Energy plc
('Serica' or the 'Company')
2006 SECOND QUARTER RESULTS
3 August 2006 - Serica Energy plc (TSX Venture & AIM: SQZ) today announces its
financial results for the three and six months ended 30 June 2006. The results
and associated Management Discussion and Analysis are included below and copies
are available at www.serica-energy.com and www.sedar.com.
Highlights
Upcoming drilling programme
• Two UK North Sea exploration wells - 4Q 2006
• 23/16f Columbus prospect
• 54/1b Oak prospect
• Four wells offshore north Sumatra, Indonesia - 1Q 2007
• Three well exploration programme on the Biliton PSC - 1Q 2007
Significant progress on Indonesian development plans
• Kambuna Field fast track development approved by Indonesian authorities
o Remains on target to come onstream in 2008 at an initial rate of 50
million cubic feet of gas per day and 5,000 barrels of condensate per
day
o Gas MOU signed and contracts under negotiation
o 3D seismic programme will commence in October 2006
• Tanjung Perling Field Plan of Development submitted in June 2006
Extensive ongoing corporate activity
• Sale of non-core 10% interest in Lematang PSC onshore south Sumatra
• Norway prequalification and planned applications for licences in the
forthcoming APA licence round that closes in September 2006
• Awarded Block 06/94 in the Nam Con Son Basin offshore south Vietnam and
made new offshore licence applications in Ireland and the UK
Tony Craven Walker, Chairman, commented:
'Serica has made significant progress in the first half of 2006, with
development plans moving forward in Indonesia and a number of rigs secured for
drilling programmes across a range of prospects over the next 12 months, despite
an exceedingly competitive rig market.'
'With drilling in the North Sea commencing in the fourth quarter, Serica is well
placed for an exciting second half of 2006 and also continues to seek
opportunities in both new and existing regions.'
Enquiries:
Serica Energy plc
Paul Ellis, pellis@serica-energy.com +44 (0)20 7487 7300
Chief Executive Officer
Chris Hearne, Finance Director chearne@serica-energy.com +44 (0)20 7487 7300
Pelham Public Relations -UK
James Henderson james.henderson@pelhampr.com +44 (0)20 7743 6673
Alisdair Haythornthwaite alisdair.haythornthwaite@pelhampr.com +44 (0)20 7743 6676
CHF Investor Relations - Canada
Jan Moir jan@chfir.com +1 416 868 1079 x237
Heather Colpitts heather@chfir.com +1 416 868 1079 x223
MANAGEMENT OVERVIEW
During the second quarter of 2006, Serica made excellent progress by securing
additional drilling rigs for its 2006-07 drilling programme in both Indonesia
and the North Sea.
Serica will use the Seadrill 5 jack-up drilling rig in Indonesia for four wells
offshore north Sumatra early in 2007 and the Ensco 92 jack-up to test the Oak
prospect in UK North Sea Block 54/1b later this year. These wells are in
addition to the three exploration wells already scheduled to be drilled in the
Biliton PSC in Indonesia and the well on the Block 23/16f Columbus prospect in
the UK North Sea. Serica has a large portfolio of exploration prospects and
will continue to source drilling equipment as appropriate opportunities appear.
In Indonesia the Seadrill 5 rig is expected to commence a continuous four-well
programme in the first quarter of 2007 on Serica's Glagah Kambuna and Asahan
Blocks offshore north Sumatra. The programme includes development wells and
work-overs.
The Kambuna Field Plan of Development has already received government approval
and Serica's Board of Directors is expected to give full project sanction in the
near future. The fast track development includes a dry wellhead tower and FPSO
(Floating Production Storage & Offloading vessel) with a gas export pipeline to
shore to give first production in 2008 at initial rates of approximately 50
million cubic feet of gas per day and 5,000 barrels of condensate per day.
There is a significant gas market in North Sumatra and Serica expects a gas
market shortfall in the region of around 100 to 200 mmscfd by 2010. The Company
is currently negotiating gas sales contracts for both the Kambuna and the
Tanjung Perling Fields. The full extent of the Kambuna Field is yet to be
defined and a large 3D seismic survey is scheduled to commence in September,
covering the Kambuna Field and adjacent areas, to delineate field extent and
evaluate other prospects.
The Plan of Development for the Tanjung Perling Field in the neighbouring Asahan
offshore PSC was submitted to the Government in June. Serica is operator of
both the Glagah Kambuna TAC and the Asahan Offshore PSC with working interests
of 65% and 55% respectively.
In the Biliton PSC, plans for the Company's three-well exploration programme are
being finalised. A rig has been identified for early 2007 drilling and a rig
sharing agreement is being negotiated. Serica has a 90% interest and is
operator of Biliton.
In June, Serica announced the sale of its 10% working interest in the Lematang
PSC, subject to Indonesian government approval, for US$5 million in cash. This
interest, which includes a share in the nearly depleted Harimau oil and gas
field and in the undeveloped Singa gas field, was Serica's only non-operated
asset and was no longer essential to the Company due to the small level of
working interest held.
In the UK North Sea, Serica now anticipates that in the fourth quarter this year
it will be drilling both the Block 23/16f Columbus prospect in the Central North
Sea and the Block 54/1b Oak prospect in the Southern Gas Basin. Serica holds a
50% working interest in Columbus and a 100% interest in Oak. Offers to farm-in
to the Oak prospect are being considered by the Company.
Serica has secured the use of the Global Sante Fe 140 semi-submersible rig to
drill Columbus and will use the ENSCO 92 jack-up rig to drill Oak.
The Company has also been active in generating new ventures as part of its
strategy to expand into areas in which Serica has existing technical knowledge.
Serica has been conditionally awarded Block 06/94 in the Nam Con Son Basin
offshore south Vietnam. Serica and its two partners, Lundin Petroleum and Pearl
Energy, will each have a 33.33% interest in the Block, which covers an area of
around 4100 square kilometres and will be operated by Pearl.
In Norway, Serica has been pre-qualified by the Norwegian authorities to hold
oil and gas exploration and production licences on the Norwegian Continental
Shelf and is evaluating the acreage on offer in the 2006 APA Round that closes
in September.
Serica has also applied for exploration licences in Ireland and in the UK 24th
Round of offshore licensing.
Serica is now well placed to exploit its potential and generate growth for
shareholders. The Company has an active exploration, appraisal and development
drilling programme in Indonesia and the UK North Sea and is fast tracking its
development projects in Indonesia. This is an extensive operational programme
for 2006-07 and Serica has the required financial and management strength to
carry it out.
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following management's discussion and analysis ('MD&A') of the financial and
operational results of Serica Energy plc and its subsidiaries (the 'Group')
contains information up to and including 21 July 2006 and should be read in
conjunction with the attached unaudited interim consolidated financial
statements for the period ended 30 June 2006. The interim financial statements
for the three and six months ended 30 June 2006 have been prepared by the
Company and are the responsibility of the Company's management. The interim
financial statements for the six months ended 30 June 2006 and 2005 have been
reviewed by the Company's auditors.
References to the 'Company' and the 'Group' include Serica and its subsidiaries
where relevant. All figures are reported in US dollars ('US$') unless otherwise
stated.
Overall Performance
Serica's activities are centred on Indonesia, the UK and Spain. The Group has no
current oil and gas production, following the disposal of its Harimau Field
interest, with the main emphasis placed upon its future exploration drilling
programmes and near term developments. During the first half 2006, work has
continued on managing its portfolio of interests, advancing the Indonesian
developments and preparing for the 2006-07 drilling programme. Further details
are noted in the Management Overview.
The results of Serica's operations are detailed below. Serica has adopted
International Financial Reporting Standards ('IFRS') for its financial
statements for the year ended 31 December 2005 with a transition date of 1
January 2004. The first year reported under IFRS was the year ended 31 December
2005, and the results in this MD&A and the financial statements are presented in
accordance with IFRS. Accordingly, Q1 and Q2 2005 comparatives have been
restated from Canadian Generally Accepted Accounting Principles ('GAAP') to
comply with IFRS.
Results of Operations
Serica generated a profit of US$2.5 million for the three months ended 30 June
2006 ('Q2 2006') compared to a loss of US$1.5 million for the three months ended
30 June 2005 ('Q2 2005'). The Q2 2006 profit includes a gain of US$2.2 million
from the disposal of the interest in Lematang and US$0.04 million revenue from
that operation.
2006 2005
Q2 Q1 Q2 Q1
US$000 US$000 US$000 US$000
Sales revenue 36 25 32 31
Expenses:
Administrative expenses (1,343) (1,322) (1,061) (1,113)
Foreign exchange gain/(loss) 890 (48) (600) (24)
Pre-licence costs (414) (160) (350) (288)
Share-based payments (533) (436) (383) (78)
Depletion, depreciation & amortisation (18) (10) (4) (4)
Operating loss before finance revenue and taxation (1,382) (1,951) (2,366) (1,476)
Profit on disposal 2,187 - - -
Finance revenue 1,210 1,152 101 82
Profit/(loss) before taxation 2,015 (799) (2,265) (1,394)
Taxation credit/(charge) 506 - 759 (41)
Profit/(loss) for the period 2,521 (799) (1,506) (1,435)
Revenues from oil and gas production are recognised on the basis of the
Company's net working interest in its properties and throughout each period were
generated from Serica's 10% interest in the Harimau producing gas and gas
condensate field. These revenues are from discontinued operations following the
disposal of the Lematang PSC interest. Direct operating costs for the field
during these periods were carried by Medco Energi Limited.
Administrative expenses of US$1.3 million for Q2 2006 remained at a consistent
level with Q1 2006 and increased from US$1.1 million for the same period last
year. The increase from 2005 reflects the growing scale of the Company's
activities over the past twelve months.
A significant foreign exchange gain of US$0.9 million was earned in Q2 2006.
This chiefly arose from the increase in US$ equivalent value of pounds sterling
cash deposits held, as the pound strengthened against the dollar during the
quarter. The foreign exchange loss of US$0.6 million in the equivalent period in
2005 was mainly due to the strengthening of the US dollar compared to sterling
in that quarter and its consequent impact on the sterling denominated ENI bond
held at that time.
Pre-licence costs include direct cost and allocated general administrative cost
incurred on oil and gas interests prior to the award of licences, concessions or
exploration rights. The increase in the charge from US$0.2 million in Q1 2006 to
US$0.4 million in Q2 2006 represents a greater focus on the UK 24th Round
licence applications, Norway and Ireland.
Share-based payment costs of US$0.5 million reflect share options granted and
compare with a cost of US$0.4 million for Q2 2005 and US$0.4 million for Q1
2006. The increase is due to share options granted in the second half of 2005
and early 2006 as the management team was built up.
Negligible depletion, depreciation and amortisation charges in both periods
represent office equipment, fixtures and fittings. The costs of petroleum and
natural gas properties are not currently subject to such charges pending further
evaluation.
A profit on disposal of US$2.2 million was generated on the sale of the 10%
interest in the Lematang PSC to Lundin Petroleum AB for US$5 million.
Finance revenue, comprising interest income of US$1.2 million, for Q2 2006
compares with US$0.1 million for Q2 2005 and US$1.1 million for Q1 2006. The
increase from last year is due to the significant cash deposit balances held
following the AIM listing and associated fund raising in December 2005.
The taxation credit of US$0.5 million arises from the release of the deferred
tax liability attached to the Lematang PSC.
Summary of Quarterly Results
2006 2006 2005 2005 2005 2005
Quarter ended: 30 Jun 31 Mar 31 Dec 30 Sep 30 Jun 31 Mar
US$000 US$000 US$000 US$000 US$000 US$000
Sales revenue 36 25 25 36 32 31
Profit/(loss) for the quarter 2,521 (799) (403) (775) (1,506) (1,435)
Basic and diluted loss per share US$ - (0.01) (0.01) (0.01) (0.02) (0.02)
Basic earnings per share US$ 0.02 - - - - -
Diluted earnings per share US$ 0.02 - - - - -
Working Capital, Liquidity and Capital Resources
Current Assets and Liabilities
An extract of the balance sheet detailing current assets and liabilities is
provided below:
30 June 31 March 2006 31 December 2005
2006
US$000 US$000 US$000
Current assets:
Inventories 681 878 878
Trade and other receivables 6,241 1,756 2,106
Cash and cash equivalents 102,430 105,101 109,750
Total Current assets 109,352 107,735 112,734
Less Current liabilities:
Trade and other payables (3,875) (3,858) (7,136)
Net Current assets 105,477 103,877 105,598
At 30 June 2006, the Company had net current assets of US$105.5 million which
comprised current assets of US$109.4 million less current liabilities of US$3.9
million, giving an overall increase in working capital of US$1.6 million in the
three month period.
Inventories fell by US$0.2 million to US$0.7 million in Q2 2006 following the
disposal of the interest in the Lematang PSC.
Trade and other receivables at 30 June 2006 include the US$5.0 million proceeds
due from the Lematang PSC disposal which, combined with a partial offset of
disposed working capital assets, largely explains the rise of US$4.4 million to
US$6.2 million in Q2 2006. Other smaller items include prepayments and sundry UK
and Indonesia working capital balances.
In addition, US$2.3 million was received during the period from the exercise of
warrants. As at 30 June 2006, a further US$6.1 million is expected in respect of
the outstanding warrants which expire 6 August 2006.
Net cash outgoings in Q2 2006 covered a US$3 million payment to PT Gunakarsa
Glagah-Kambuna Energi for their 10% interest in the Glagah Kambuna TAC,
operational expenses and exploration work. These were partially offset by
US$1.2 million of interest income received in the quarter.
Trade and other payables include a further US$1.5 million payable in respect of
the Q2 2006 acquisition of an additional 10% interest in the Glagah Kambuna TAC.
Significant trade and other payables balances in relation to the 2005 drilling
programme and the AIM listing were settled in Q1 2006.
Long-Term Assets and Liabilities
An extract of the balance sheet detailing long-term assets and liabilities is
provided below:
30 June 31 March 2006 31 December
2006 2005
US$000 US$000 US$000
Intangible exploration assets 28,102 24,419 23,591
Goodwill 1,877 2,382 2,382
Property, plant and equipment 304 304 26
Long-term other receivables 2,003 2,129 1,758
Long-term other payables - (151) (151)
Deferred income tax liabilities (1,631) (2,137) (2,137)
During Q2 2006, total investments in petroleum and natural gas properties,
represented by intangible exploration assets, increased by US$3.7 million to
US$28.1 million. This increase was generated from US$5.7 million of new spend,
less US$2.0 million of exploration assets disposed of with the Lematang PSC. Of
the Q2 2006 additions, US$4.5 million was spent on the 10% additional interest
in the Glagah Kambuna TAC, US$0.8 million on exploration work and G&A on the
Biliton, Asahan and Glagah Kambuna concessions in Indonesia, and US$0.4 million
on exploration work and G&A in the UK.
Goodwill, representing the difference between the price paid on acquisitions and
the fair value applied to individual assets, fell by US$0.5 million to US$1.9
million following the Lematang disposal.
Long-term other receivables of US$2.0 million represent value added tax ('VAT')
on Indonesian capital spend which is expected to be recovered once the fields
commence production.
Long-term other payables at 31 March 2006 comprised VAT payable in Indonesia.
This liability was cleared following the Lematang PSC disposal.
Deferred income tax liabilities fell by US$0.5 million in Q2 2006 to US$1.6
million as the liability associated with the Lematang PSC was removed.
Shareholders' Equity
An extract of the balance sheet detailing shareholders' equity is provided
below:
30 June 31 March 2006 31 December
2006 2005
US$000 US$000 US$000
Total share capital 151,119 148,864 148,745
Other reserves 2,238 1,705 1,269
Accumulated deficit (17,225) (19,746) (18,947)
Total share capital includes the total net proceeds from share issues,
comprising both nominal value and any premium.
Issued share capital during Q1 2006 was increased by the exercise of 121,250
warrants and share options of the Company at prices ranging from Cdn$1.00 to
Cdn$1.20. Issued share capital during Q2 2006 was increased by the exercise of
2,128,701 warrants of the Company at a price of Cdn$1.20.
The increase in other reserves from US$1.3 million to US$1.7 million in Q1 2006
and from US$1.7 million to US$2.2 million in Q2 2006 reflects the amortisation
of share options.
Capital Resources
At 30 June 2006, Serica had US$105.5 million of net working capital and no short
or long-term debt. At that date the Company had commitments to future minimum
payments under operating leases in respect of rental office premises, office
equipment and motor vehicles for each of the following period/years as follows:
US$000
Period ended 31 December 2006 138
Year ended 31 December 2007 198
Year ended 31 December 2008 183
Year ended 31 December 2009 177
Year ended 31 December 2010 36
The Company had no long-term debt or capital lease obligations. The Company has
a contract covering the provision of drilling-related services and equipment in
connection with the Indonesian drilling programme. As part of this, Serica will
acquire up to US$7.0 million of steel casing. The first tranche is expected to
be acquired during Q3 2006. This is contracted for but not provided in the Q2
2006 results.
Until revenues are generated from its planned field developments, Serica will
utilise existing financial resources as required to fund its investment
programme and ongoing operations. The Company will continue to review other
financing alternatives, including debt facilities, in order to optimise its
financial structure.
Off-balance Sheet Arrangements
The Company has not entered into any off-balance sheet transactions or
arrangements.
Critical Accounting Estimates
The accounting policies are summarised in note 2 to the attached financial
statements and full details of the Company's accounting policies are included in
the Serica Energy plc annual report for the year ended 31 December 2005. There
have been no changes in accounting policies during the period, and following the
adoption of International Financial Reporting Standards ('IFRS') for the 2005
audited financial statements, the Q1 and Q2 2005 comparative results reported
have been restated from Canadian GAAP to IFRS. The cost of exploring for and
developing petroleum and natural gas reserves are capitalised. Unproved
properties are subject to periodic impairment tests whilst the costs of proved
properties are depleted over the life of such producing fields. In each case,
calculations are based upon management assumptions about future outcomes,
product prices and performance.
Financial Instruments
The Group's financial instruments comprise cash and cash equivalents, accounts
payable and accounts receivable. It is the management's opinion that the Group
is not exposed to significant currency, interest or credit risks arising from
its financial instruments other than as discussed below:
Cash and cash equivalents, which comprise short-term cash deposits, are
generally held in the currency of likely future expenditures to minimise the
impact of currency fluctuations. The majority of funds are currently held in US
dollars to match the Group's exploration and appraisal commitments. The holding
of £8.2 million at period-end reflected a proportion of UK licence commitments
and administrative expenditures expected in pounds sterling.
Following the recent fund-raising, Serica is holding significant net cash.
Whilst this does leave exposure to interest rate fluctuations, given the level
of expenditure plans over 2006-07 this is managed in the short-term through
selecting treasury deposit periods of one to six months.
There is currently no sales revenue and therefore no customer credit risk. Cash
and treasury credit risks are mitigated through spreading the placement of funds
over a range of institutions each carrying acceptable published credit ratings
to minimise counterparty risk.
It is the management's opinion that the fair value of its financial instruments
approximate to their carrying values, unless otherwise noted.
Warrants and Share Options
As at 30 June 2006, the following warrants and options were outstanding:
Expiry Date Amount Value Cdn$
Warrants 6 Aug 2006 5,739,425 6,887,310
Share options Aug 2007 400,000 444,000
Jun 2008 400,000 720,000
Aug 2009 100,000 111,000
Feb 2009 877,500 1,895,000
May 2009 100,000 200,000
Dec 2009 325,000 365,000
Jan 2010 600,000 600,000
Jun 2010 1,300,000 2,340,000
Value £
Nov 2010 696,000 675,120
Jan 2011 1,395,000 1,443,825
May 2011 180,000 172,800
Jun 2011 270,000 259,200
Business Risk and Uncertainties
Serica, like all exploration companies in the oil and gas industry, operates in
an environment subject to inherent risks. Many of these risks are beyond the
ability of a company to control, particularly those associated with the
exploring for and developing of economic quantities of hydrocarbons: volatile
commodity prices, governmental regulations and environmental matters.
Nature and Continuance of Operations
The principal activity of the Company is to identify, acquire and subsequently
exploit oil and gas reserves primarily in Asia and Europe.
The Company's financial statements have been prepared with the assumption that
the Company will be able to realise its assets and discharge its liabilities in
the normal course of business rather than through a process of forced
liquidation. The Company currently has no operating revenue and, during the
three month period ended 30 June 2006, the Company generated a profit of US$0.3
million from continuing operations. At 30 June 2006, the Company held cash and
cash equivalents of US$102.4 million.
Outstanding Share Capital
As at 21 July 2006, the Company had 146,683,530 ordinary shares issued and
outstanding and 157,181,456 on a fully diluted basis.
Additional Information
Additional information relating to Serica can be found on the Company's website
at www.serica-energy.com and on SEDAR at www.sedar.com
Approved on Behalf of the Board
Paul Ellis Christopher Hearne
Chief Executive Officer Finance Director
3 August 2006
Forward Looking Statements
This disclosure contains certain forward looking statements that involve
substantial known and unknown risks and uncertainties, some of which are beyond
Serica Energy plc's control, including: the impact of general economic
conditions where Serica Energy plc operates, industry conditions, changes in
laws and regulations including the adoption of new environmental laws and
regulations and changes in how they are interpreted and enforced, increased
competition, the lack of availability of qualified personnel or management,
fluctuations in foreign exchange or interest rates, stock market volatility and
market valuations of companies with respect to announced transactions and the
final valuations thereof, and obtaining required approvals of regulatory
authorities. Serica Energy plc's actual results, performance or achievement
could differ materially from those expressed in, or implied by, these forward
looking statements and, accordingly, no assurances can be given that any of the
events anticipated by the forward looking statements will transpire or occur, or
if any of them do so, what benefits, including the amount of proceeds, that
Serica Energy plc will derive there from.
The TSX Venture Exchange has not reviewed and does not accept responsibility for
the adequacy or accuracy of this release.
To receive Company news releases via email, please contact heather@chfir.com and
specify 'Serica press releases' in the subject line.
Serica Energy plc
Group Income Statement
Unaudited Three Three Six Six
months months months months
ended ended ended ended
30 June 30 June 30 June 30 June
2006 2005 2006 2005
Notes US$000 US$000 US$000 US$000
Sales revenue 36 32 61 63
Cost of sales - - - -
Gross profit 36 32 61 63
Administrative expenses (1,343) (1,061) (2,665) (2,174)
Foreign exchange gain/(loss) 890 (600) 842 (624)
Pre-licence costs (414) (350) (574) (638)
Share-based payments (533) (383) (969) (461)
Depreciation, depletion & amortisation (18) (4) (28) (8)
Operating loss before finance
revenue and tax (1,382) (2,366) (3,333) (3,842)
Profit on disposal 6 2,187 - 2,187 -
Finance revenue 1,210 101 2,362 183
Profit/(loss) before taxation 2,015 (2,265) 1,216 (3,659)
Taxation credit for the period 506 759 506 718
Profit/(loss) for the period 2,521 (1,506) 1,722 (2,941)
Earnings per ordinary share (US$):
Basic and diluted loss per share - (0.02) - (0.02)
Basic earnings per ordinary share 0.02 - 0.01 -
Diluted earnings per ordinary share 0.02 - 0.01 -
Serica Energy plc
Consolidated Balance Sheet
30 June 31 March 31 December
2006 2006 2005
US$000 US$000 US$000
Notes (Unaudited) (Unaudited) (Audited)
Intangible exploration assets 28,102 24,419 23,591
Goodwill 1,877 2,382 2,382
Property, plant and equipment 304 304 26
Other receivables 2,003 2,129 1,758
32,286 29,234 27,757
Inventories 681 878 878
Trade and other receivables 6,241 1,756 2,106
Cash and cash equivalents 102,430 105,101 109,750
109,352 107,735 112,734
TOTAL ASSETS 141,638 136,969 140,491
Current liabilities
Trade and other payables (3,875) (3,858) (7,136)
Non-current liabilities
Other payables - (151) (151)
Deferred income tax liabilities (1,631) (2,137) (2,137)
TOTAL LIABILITIES (5,506) (6,146) (9,424)
NET ASSETS 136,132 130,823 131,067
Share capital 4 151,119 148,864 148,745
Other reserves 2,238 1,705 1,269
Accumulated deficit (17,225) (19,746) (18,947)
TOTAL EQUITY 136,132 130,823 131,067
Serica Energy plc
Statement of Changes in Equity
For the period ended 30 June 2006
Group Share capital Other Deficit Total
reserves
US$000 US$000 US$000 US$000
At 1 January 2005 33,047 256 (14,828) 18,475
Conversion of warrants 10,190 - - 10,190
Issue of 'A' share 90 - - 90
Issue of shares (net) 105,418 - - 105,418
Share-based payments - 1,013 - 1,013
Loss for the year - - (4,119) (4,119)
At 1 January 2006 148,745 1,269 (18,947) 131,067
Conversion of warrants 119 - - 119
Share-based payments - 436 - 436
Loss for the period - - (799) (799)
At 31 March 2006 (unaudited) 148,864 1,705 (19,746) 130,823
Conversion of warrants 2,282 - - 2,282
Share issue costs (27) - - (27)
Share-based payments - 533 - 533
Profit for the period - - 2,521 2,521
At 30 June 2006 (unaudited) 151,119 2,238 (17,225) 136,132
Serica Energy plc
Consolidated Cash Flow Statement
Unaudited Three Three Six Six month
months months months months
ended ended ended ended
30 June 30 June 30 June 30 June
2006 2005 2006 2005
US$000 US$000 US$000 US$000
Cash flows from operating activities:
Operating loss (1,382) (2,366) (3,333) (3,842)
Adjustments for:
Depreciation, depletion and amortisation 18 4 28 8
Share-based payments 533 383 969 461
Changes in working capital (1,011) 1,547 (4,334) 2,435
Cash generated from operations (1,842) (432) (6,670) (938)
Taxes received - - 34 -
Net cash flow from operations (1,842) (432) (6,636) (938)
Cash flows from investing activities:
Disposals - Cash disposed (51) - (51) -
Interest received 1,210 21 2,362 103
Purchases of property, plant and equipment (8) (10) (306) (10)
Purchase of intangible exploration assets (4,235) (2,439) (5,063) (3,486)
Net cash used in investing (3,084) (2,428) (3,058) (3,393)
Cash proceeds from financing activities:
Proceeds on exercise of warrants/options 2,255 785 2,374 9,679
Net cash from financing activities 2,255 785 2,374 9,679
Cash and cash equivalents
Net (decrease)/increase (2,671) (2,075) (7,320) 5,348
Amount at start of period 105,101 9,152 109,750 1,729
Amount at end of period 102,430 7,077 102,430 7,077
Serica Energy plc
Notes to the Unaudited Consolidated Financial Statements
1. Nature and continuance of operations
Serica Energy plc is a public limited company incorporated and domiciled in
England and Wales. The Company's ordinary shares are traded on the Alternative
Investment Market of the London Stock Exchange ('AIM') and the Canadian TSX
Venture Exchange. The principal activity of the Company is to identify, acquire
and subsequently exploit oil and gas reserves primarily in Asia and Europe.
On 1 September 2005, the Company completed a reorganisation whereby the common
shares of Serica Energy Corporation were automatically exchanged on a
one-for-one basis for ordinary shares of Serica Energy plc, a newly formed
company incorporated under the laws of the United Kingdom. In addition, each
shareholder of the Corporation received beneficial ownership of part of the 'A'
share of Serica Energy plc issued to meet the requirements of public companies
under the United Kingdom jurisdiction. Under IFRS this reorganisation was
considered to be a reverse takeover by Serica Energy Corporation and as such the
financial statements of the Group represent a continuation of Serica Energy
Corporation.
2. Accounting Policies
Basis of Preparation
These unaudited interim consolidated financial statements of the Group have been
prepared in accordance with International Financial Reporting Standards
following the same accounting policies and methods of computation as the
consolidated financial statements for the year ended 31 December 2005. These
unaudited interim consolidated financial statements do not include all the
information and footnotes required by generally accepted accounting principles
for annual financial statements and therefore should be read in conjunction with
the consolidated financial statements and the notes thereto in the Serica Energy
plc Annual Report for the year ended 31 December 2005.
New accounting standards:
The accounting policies adopted in the preparation of the interim condensed
consolidated financial statements are consistent with those followed in the
preparation of the Group's annual financial statements for the year ended 31
December 2005, except for the adoption of the following mandatory standards for
annual periods beginning on or after 1 January 2006:
Amendment to IAS 19 'Employee Benefits - Actuarial Gains and Losses, Group Plans
and Disclosures';
Amendment to IAS 39 'Financial Instruments: Recognition and Measurement';
IFRIC 4 'Determining Whether an Arrangement Contains a Lease';
IFRIC 5 'Rights to Interests Arising from Decommissioning, Restoration and
Environmental Rehabilitation Funds'.
The adoption of these did not affect the Group's results of operations or
financial position.
The financial statements are unaudited but have been reviewed by Ernst & Young
LLP and their report is set out below.
The Group financial statements are presented in US dollars and all values are
rounded to the nearest thousand dollars (US$000) except when otherwise
indicated.
Basis of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries Serica Energy Corporation, Asia Petroleum
Development Limited, Petroleum Development Associates (Asia) Limited, Serica
Energia Iberica S.L., Firstearl Limited, Serica Energy (UK) Limited, PDA
Lematang Limited, APD (Asahan) Limited, APD (Biliton) Limited, APD (Glagah
Kambuna) Limited and Serica Energy Pte Limited. Together these comprise the
'Group'.
All significant inter-company balances and transactions have been eliminated
upon consolidation.
3. Segmental Information
The primary segment reporting format is determined to be geographical segments
and they are based on the location of the Group's assets. The Group has only one
business segment, that of oil & gas exploration.
The following table presents revenue and profit information regarding the
Group's geographical segments for the six months ended 30 June 2006.
Indonesia UK Spain Total
US$000 US$000 US$000 US$000
Revenue 61 - - 61
Net income/(loss) 2,433 (655) (56) 1,722
4. Equity Share Capital
30 June 30 June 31 December 31 December
2006 2006 2005 2005
Number US$000 Number US$000
Authorised:
Common shares with no par (1) value - - - -
Ordinary shares of US$0.10 200,000,000 20,000 200,000,000 20,000
Ordinary 'A' share of £50,000 1 90 1 90
200,000,001 20,090 200,000,001 20,090
On incorporation, the authorised share capital of the Company was £50,000 and
US$20,000,000 divided into one 'A' share of £50,000 and 200,000,000 ordinary
shares of US$0.10 each, two of which were issued credited as fully paid to the
subscribers to the Company's memorandum of association.
The balance classified as total share capital includes the total net proceeds
(both nominal value and share premium) on issue of the Group and Company's
equity share capital, comprising US$0.10 ordinary shares.
Allotted, issued and fully paid: Share prem Share Total
capital premium Share capital
Group Number US$000 US$000 US$000
At 1 January 2006 142,548,580 14,345 134,400 148,745
Warrants/options exercised (2) 121,250 12 107 119
As at 31 March 2006 142,669,830 14,357 134,507 148,864
Warrants/options exercised (3) 2,128,701 213 2,042 2,255
As at 30 June 2006 144,798,531 14,570 136,549 151,119
(1) Prior to the reorganisation on 1 September 2005, the Group's common shares
had no par value, accordingly all value was classified as share capital.
(2) From 1 January 2006 until 31 March 2006, 121,250 share purchase warrants and
options were converted to ordinary shares at prices ranging from Cdn$1.00 to
Cdn$1.20.
(3) From 1 April 2006 until 30 June 2006, 2,128,701 share purchase warrants were
converted to ordinary shares at a price of Cdn$1.20.
5. Share-Based Payments
Share Option Plans
Following a reorganisation in 2005, the Company established an option plan (the
'Serica 2005 Option Plan') to replace the Serica Energy Corporation Share Option
Plan (the 'SEC Share Option Plan'). Serica Energy Corporation was previously
the holding company of the Group, but is now a wholly owned subsidiary of the
Company. The Serica 2005 Option Plan will govern all future grants of options by
the Company and no further options will be granted under the SEC Share Option
Plan. Existing options under the SEC Share Option Plan entitle holders to
acquire ordinary shares of the Company.
The Directors intend that the maximum number of ordinary shares which may be
utilised pursuant to the Serica 2005 Option Plan will not exceed 10% of the
issued ordinary shares of the Company from time to time, in line with the
recommendations of the Association of British Insurers.
The Company calculated the value of share-based compensation using a
Black-Scholes option pricing model to estimate the fair value of share options
at the date of grant. The estimated fair value of an option is amortised to
expense over its vesting period. US$436,000 and US$533,000 has been charged to
the income statement in the periods ended 31 March 2006 and 30 June 2006
respectively. Similar amounts have been credited to other reserves.
The assumptions made for the options granted during 2005 and 2006 include a
volatility factor of expected market price of 50%, a weighted average risk-free
interest rate of 6%, no dividend yield and a weighted average expected life of
options of three years.
The following table illustrates the number and weighted average exercise prices
(WAEP) of, and movements in, share options during the period:
Number WAEP Cdn$
SEC Share Option Plan
Outstanding at 31 December 2005 4,212,500 1.58
Cancelled during the period (110,000) 1.27
Outstanding at 31 March 2006 and
30 June 2006 4,102,500 1.59
Serica 2005 Option Plan £
Outstanding at 31 December 2005 696,000 0.97
Granted during the period 1,395,000 1.03
Outstanding at 31 March 2006 2,091,000 1.01
Granted during the period 450,000 0.96
Outstanding at 30 June 2006 2,541,000 1.00
6. Asset Acquisitions and Disposals
Acquisitions:
On 28 April 2006, the Group acquired an additional 10% interest in the Glagah
Kambuna TAC from PT Gunakarsa Glagah-Kambuna Energi for US$4.5 million.
Following receipt of the required regulatory approvals, Serica's working
interest in the block will increase to 65%.
The net effect of the acquisition on the Group's balance sheet and provisional
allocation of assets at acquisition were as follows:
Book value Fair value Preliminary fair
adjustment value
US$000 US$000 US$000
Intangible exploration assets - 4,500 4,500
Working capital - - -
- 4,500 4,500
The above numbers are preliminary. Adjustments may occur as a result of
obtaining more information regarding asset valuations, liabilities assumed and
revisions of preliminary estimates of fair values made at the date of purchase.
Disposals:
On 13 June 2006 the Group concluded an agreement for the sale of its 10%
interest in the Lematang Production Sharing Contract, onshore south Sumatra, to
Lundin Petroleum AB ('Lundin Petroleum') for US$5 million in cash subject to the
required partner and Indonesian government approvals. The block includes the
nearly depleted Harimau gas field and the Singa gas field development project.
The disposal resulted in a profit of US$2.2 million.
7. Taxation
The major components of income tax in the consolidated income statement are:
For the six months ended 30 June
2006 2005
US$000 US$000
Current income tax charge Nil Nil
Deferred income tax credit 506 718
The book gain on sale of the Lematang PSC is sheltered from tax by historic
costs not reflected in the book value, indexation, and current UK tax losses
elsewhere in the group.
The 2006 deferred tax credit arises from the release of the deferred tax
liability attached to the Lematang PSC.
8. Publication of Non-Statutory Accounts
The financial information contained in this interim statement does not
constitute statutory accounts as defined in section 240 of the Companies Act
1985. The financial information for the full preceding year is based on the
statutory accounts for the financial year ended 31 December 2005. Those
accounts, upon which the auditors issued an unqualified opinion, have been
delivered to the Registrar of Companies.
This interim statement will be made available at the Company's registered office
at 52 Bedford Row, London WC1R 4LR and on its website at www.serica-energy.com
and on SEDAR at www.sedar.com
Independent Review Report to Serica Energy plc
Introduction
We have been instructed by the Company to review the financial information for
the six months ended 30 June 2006 which comprises the Consolidated Income
Statement, Consolidated Balance Sheet, Consolidated Statement of Changes in
Equity, Cash flow, and the related notes 1 to 8. We have read the other
information contained in the interim report and considered whether it contains
any apparent misstatements or material inconsistencies with the financial
information.
This report is made solely to the Company having regard to guidance contained in
Bulletin 1999/4 'Review of interim financial information' issued by the Auditing
Practices Board. To the fullest extent permitted by the law, we do not accept or
assume responsibility to anyone other than the Company, for our work, for this
report, or for the conclusions we have formed.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by, the directors. The directors
are responsible for preparing the interim report as required by the AIM Rules
issued by the London Stock Exchange and the rules of the TSX Venture Exchange.
Review work performed
We conducted our review having regard to the guidance contained in Bulletin 1999
/4 'Review of interim financial information' issued by the Auditing Practices
Board for use in the United Kingdom. A review consists principally of making
enquiries of group management and applying analytical procedures to the
financial information and underlying financial data, and based thereon,
assessing whether the accounting policies and presentation have been
consistently applied, unless otherwise disclosed. A review excludes audit
procedures such as tests of controls and verification of assets, liabilities and
transactions. It is substantially less in scope than an audit performed in
accordance with International Standards on Auditing (UK and Ireland) and
therefore provides a lower level of assurance than an audit. Accordingly we do
not express an audit opinion on the financial information.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 June 2006.
Ernst & Young LLP
1 More London Place
London
SE1 2AF
3 August 2006
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